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Corporate sales to rebound on pro-growth measures
By HSBC Global Research |
May 31, 2012, Thursday
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Print Edition
Print Edition
FEARS of growth, Greece and corporate governance among China investors appear to be peaking, and sentiment could improve on any incremental positive development. For instance, HSBC China PMI Index has stayed below 50 for almost a year, except for last October.
The short turnover ratio for the Hong Kong market hit 14.7 percent on May 23, a record high since 1999. And H-share index has de-rated 45 percent versus its five-year valuation average to 6 times on forward PE terms, or slightly higher than the 2008 valuation trough of 5 times.
In fact, sell-side analysts stopped revising down earnings forecasts for the MSCI China universe in May for the first time since last September. The silver lining of the newly released April financial data for China's industrial companies is the stabilizing net profit margin, down only marginally month-on-month to 5.6 percent, despite a more visible sales contraction.
Sales growth has been highly correlated with the growth of industrial production multiplied by the Producer Price Index, and it is set to rebound materially in the second half of 2012, on pro-growth policy responses, and lift profit growth as well:
Monetary policy - HSBC China economist expects an additional two to three 50-basis-point reserve requirement ratio cuts for the rest of year and a possible 27-basis-point benchmark interest rate cut around the middle of the year.
Fiscal stimulus - The central government will do enough to stabilize GDP growth around 7.5 percent in the coming quarters, but it has no interest in re-engineering a V-shaped rebound that we saw post the 4 trillion yuan (US$635 billion) stimulus in early 2009 as it is still digesting the side effects.
As we expected, infrastructure investments, or 20 percent of fixed-asset investments, have been rebounding for the past quarter from a low base owing to faster project approvals, and the Ministry of Finance is also accelerating the dispatch of state budgets to facilitate investments.
Private capital - for the past two months, six central government agencies have revealed new policies to facilitate private sector investment in healthcare, transportation, railways, banking sectors and participation of state-owned enterprise restructuring. Premier Wen Jiabao even stated on May 28 that private capital could enter into any service sector that is not prohibited by law.
The article was written by Steven Sun and Roger Xie, equity strategists at HSBC, and Garry Evans, global head of equity strategy at HSBC. The opinions are their own.
The short turnover ratio for the Hong Kong market hit 14.7 percent on May 23, a record high since 1999. And H-share index has de-rated 45 percent versus its five-year valuation average to 6 times on forward PE terms, or slightly higher than the 2008 valuation trough of 5 times.
In fact, sell-side analysts stopped revising down earnings forecasts for the MSCI China universe in May for the first time since last September. The silver lining of the newly released April financial data for China's industrial companies is the stabilizing net profit margin, down only marginally month-on-month to 5.6 percent, despite a more visible sales contraction.
Sales growth has been highly correlated with the growth of industrial production multiplied by the Producer Price Index, and it is set to rebound materially in the second half of 2012, on pro-growth policy responses, and lift profit growth as well:
Monetary policy - HSBC China economist expects an additional two to three 50-basis-point reserve requirement ratio cuts for the rest of year and a possible 27-basis-point benchmark interest rate cut around the middle of the year.
Fiscal stimulus - The central government will do enough to stabilize GDP growth around 7.5 percent in the coming quarters, but it has no interest in re-engineering a V-shaped rebound that we saw post the 4 trillion yuan (US$635 billion) stimulus in early 2009 as it is still digesting the side effects.
As we expected, infrastructure investments, or 20 percent of fixed-asset investments, have been rebounding for the past quarter from a low base owing to faster project approvals, and the Ministry of Finance is also accelerating the dispatch of state budgets to facilitate investments.
Private capital - for the past two months, six central government agencies have revealed new policies to facilitate private sector investment in healthcare, transportation, railways, banking sectors and participation of state-owned enterprise restructuring. Premier Wen Jiabao even stated on May 28 that private capital could enter into any service sector that is not prohibited by law.
The article was written by Steven Sun and Roger Xie, equity strategists at HSBC, and Garry Evans, global head of equity strategy at HSBC. The opinions are their own.
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